Unexpected tax implications on separation and divorce
When you are going through a separation or divorce, tax will be the last thing on your mind. However, finding out later that you should have done something earlier will add to your stress.
To make matters worse, the date which you work to will be different for different taxes.
As always with tax, it is far better to make plans and take advice at an early stage. If you are separating or getting divorced we would advise you to consider the following tax implications:
- Transfers of assets between husbands and wives (or civil partners) are made without any tax implications until the end of the tax year in which the permanent separation occurs. Subsequent transfers of assets may result in unexpected Capital Gains Tax (CGT) liabilities.
- If business assets are transferred as part of the financial settlement, tax reliefs may be available to defer the gain.
- Private Residence Relief (PRR) may only exempt part of the gain arising on the transfer (or eventual sale) of the family home if a spouse moved out more than 18 months ago and has bought a new home. However, if the property remains in their joint names, the PRR exemption may be preserved if there is a Mesher order allowing the other spouse and children to continue living in the family home.
- If the separation is permanent, the 3% Stamp Duty Land Tax surcharge should not be payable on the purchase of a new home.
- For Inheritance Tax (IHT) purposes, you remain married until the date of the Decree Absolute. Assets can be transferred up to that date (and sometimes beyond, if conditions are met) without any IHT charges.
CKLG Accountants in Cambridge can help you understand and manage the tax implications of separation and divorce.
Listen again to CKLG's Katie Holmes and Rebecca Varey from Woodfines Solicitors chatting to Neil Whiteside on Cambridge Radio 105 - tax considerations when divorcing or seperating.
For sensitive and helpful tax advice tailored to your circumstances, contact Katie or Sarah on 01223 810100.